But the repayments will not pave the way for more government spending.

"Under the budgetary rules this money will not affect the deficit. It's regarded as a financial transaction ... so the money will be used to reduce the debt and it will have a big impact on the debt,” said finance minister Michael Noonan.

“But then as a consequence, of course, it will have a small impact on the total interest we pay on the national debt. But principally since the money was borrowed in the first instance to allow the taxpayer to bailout AIB, the money will be paid back to alleviate that borrowing burden," he added.

AIB had previously flagged plans to start returning money to the State, however the organisation still needed regulatory approval.

The bank has now received the green light from the EU banking regulator, known as the Single Supervisory Mechanism (SSM), for a number of capital actions that the bank says will “simplify and strengthen the group’s regulatory capital position.”

€1.7bn will be repaid to the State from the partial redemption of the 2009 preference shares while the maturity of the Contingent Capital Notes will result in a further repayment of €1.6bn of capital to the State on 28 July 2016.

The remainder of the preference shares will be converted into ordinary shares that will result in a net increase in fully loaded CET 1 of €1.8bn.

The bank will issue junior bonds known as Tier 2 and Additional Tier 1 notes to raise a minimum of €1.25bn. A minimum of €750m will be raised through the Tier 2 bonds while at least €500m will be raised from the Additional Tier 1 notes.

The repayments are subject to shareholder approval at an Extraordinary General Meeting (EGM), the details of which will be announced “in due course”, according to the bank. This is expected to be little more than a formality given that the State owns almost all of the shares in AIB.

AIB chief executive Bernard Byrne said: “The approval of these capital actions by the SSM represents another key milestone in the transformation of AIB.

"The capital reorganisation will support a sustainable and compliant regulatory capital structure underpinning our business plans and positions the Group to repay capital to the State and return to private ownership over time.”